Stablecoin Supply Breaks $10B as Traders Demand Dollars Over Bitcoin

The value of assets for all stablecoins surpassed $10 billion as more cryptocurrency traders prefer alternative cryptocurrencies using dollar-backed digital tokens instead of bitcoin, according to Coin Metrics data.

May 12, 2020 at 7:01 p.m. UTC
Updated Sep 14, 2021 at 8:40 a.m. UTC

The value of assets for all stablecoins surpassed $10 billion Tuesday, having surged by over 70% in just two months, according to Coin Metrics. Stablecoin supply growth comes as more cryptocurrency traders choose to trade alternative cryptocurrencies (or altcoins) using dollar-backed digital tokens instead of bitcoin.

Most of the stablecoin growth comes from tether, which represents almost 90% of the total stablecoin supply. The largest tether markets measured by traded volume are supported by two Asia-based exchanges, Binance and Huobi, according to CoinGecko. Both exchanges support nearly 200 different cryptocurrencies, which makes them attractive platforms for altcoin traders.

Almost every exchange offers the choice to trade assets priced in different quote currencies, usually dollars or bitcoins, which determine the value of alternative cryptocurrencies. 

Altcoin traders have historically preferred to use bitcoin or even ether as the currency that prices other tokens. But during the past two years, that trend has shifted significantly. Now they mostly trade against stablecoins.

CoinDesk - Unknown

Trading volume for BTC and USDT quote pairs excluding BTC/USDT

A growth in trading stablecoin quote pairs coincides with considerable overall growth in total altcoin trading volume, according to data from Nomics. But that growth excludes ether and bitcoin quote pairs, which have mostly stayed below their volume highs made in late 2017. 

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Traded volume for BTC, ETH, and USDT quote pairs excluding BTC/USDT and ETH/USDT

The stability of dollar-backed tokens is a primary advantage over using bitcoin as the quote currency, according to one analyst. 

"Stablecoins have always had an edge over bitcoin as a base trading pair because of its inherent price stability,” said Aditya Das, cryptocurrency markets analyst at Brave New Coin. “Stability means traders feel safer holding a stock of it and using it as a liquidity tool for trading.”

Demand for stablecoin quote pairs in cryptocurrency spot markets has influenced derivatives products as well. For example, BitMEX, the second-largest cryptocurrency derivatives market by open interest, is keenly aware of the shift in demand for more stablecoin-denominated trading products. 

"We have noticed that traders prefer to trade pairs with USD-like denominations as dominance for altcoin trading moved from XBT-based Poloniex to USD- and USDT-based Binance and Coinbase,” said Greg Dwyer, head of business development at BitMEX.

Earlier this year, BitMEX launched two new futures products: XRPUSD perpetual futures and ETHUSD quanto futures.

“An upwards trend in appetite for stablecoin-quoted pairs makes perfect sense to me,” said Catherine Coley, CEO of Binance.US. “Before and during the 2017 bull market, you had the bitcoin OGs trading in bitcoin-quoted pairs,” she said. 

But the newer generation of traders and investors “think in dollars and trade with stablecoins,” said Coley.

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